Trusts and Family Law

If you or a member of your family is a beneficiary under a trust, this could have significant implications for any financial settlement upon divorce or civil partnership dissolution. Whether you are married to a person who is entitled to income or assets from a family trust or you are a trustee looking to provide the best protection available for trust assets in the event of relationship breakdown, we will provide you with realistic, commercially-focused advice.

The family law specialists at JMW have substantial expertise in dealing with trust assets both in the UK and overseas to achieve the best possible outcome, whatever your situation.

If you would like to speak to us about trusts and family law, simply call us on 0345 872 6666 or complete our online enquiry form to let us know a suitable time to contact you. We are more than happy to respond to any queries you might have.

About Trusts

There are many different reasons for trusts to be set up. A trust is where property - anything from land and buildings to cash, stocks and shares - is legally owned by one person or a set of people on behalf of another person or set of people entitled to the benefit of that property.

A very simple example would be if parents died before their child reached the age of 18 and that child inherited a house from them. However, it is not possible for someone under 18 to have legal ownership of a property. One or more adult trustees would take on the legal title to the property and, for example, sign any paperwork and deal with rental income in a responsible fashion until the child reaches 18 years old and can take on ownership.

In other cases, trust structures are used to enable members of an older generation to pass assets down through their family with the aim of reducing any tax liability. Trusts can also be used to hold assets on behalf of someone who is unable to manage property themselves due to disability. Alternatively, a family trust could be a way of providing income and resources to beneficiaries whilst allowing the original owner of the assets to retain a degree of control over what happens to them.

Trusts and Divorce

When a couple divorces or dissolves their civil partnership, each party will need to give full and frank disclosure of their financial resources, including any entitlement to income or assets under a trust. This entitlement can substantially affect the type of financial settlement that would be appropriate.

Sometimes, a person may have few or no assets in their own name. However, they may receive a significant income from a family trust. This income would need to be disclosed and the court would take it into account when considering how the couple’s assets should be divided and what maintenance should be paid for the benefit of the other party and/or their children.

Discretionary trusts can present substantial complexity in the context of divorce or civil partnership dissolution. A discretionary trust is where trustees are empowered to use their ‘discretion’ to provide particular people (the beneficiaries) with income, loans or outright transfers of assets. The terms of the trust may provide guidance as to how and when this should be done. The beneficiary of a discretionary trust or the trustees themselves may argue this “discretion” would not be exercised if it will benefit a former spouse or civil partner. In this situation, a beneficiary may be ordered to make payments to their spouse or civil partner that they cannot afford from their own resources because the court will assume that the trust would not allow the beneficiary to be financially ruined.

Nuptial Settlements

Sometimes trust provision is made for a married couple, civil partners or their children, either during their marriage or in anticipation of it. If a trust falls into this category, it is known as a nuptial settlement and the terms of the trust can be formally varied by the court as part of the financial settlement on divorce or civil partnership dissolution.

Whether a trust counts as a nuptial settlement can be difficult and legally complex to determine. The courts have, in the past, been quite broad in their interpretation of what counts as a nuptial settlement. Trustees may therefore find themselves unexpectedly involved in financial proceedings on divorce or compelled to make provision for a beneficiary’s former spouse or civil partner.

Planning and Wealth Protection

Trusts can be used as part of a wider estate planning and wealth protection strategy to enable individuals to safeguard family property as it passes down the generations and to mitigate their tax liabilities. Depending on the precise circumstances of the case, property that has been inherited or owned under a trust structure may be treated differently from other property when dividing assets on divorce or civil partnership dissolution. It is therefore vital that any estate planning exercise takes into account what could happen in the event you or a beneficiary of a trust you have established divorces.

If you are a beneficiary under a trust, you should consider putting a prenuptial or pre-partnership agreement in place prior to your marriage or civil partnership. If you are a trustee, you may wish to explore the possibility of a prenuptial or pre-partnership agreement with any beneficiary under the trust who is planning a wedding or civil ceremony.

Post-nuptial agreements may also be an option to provide greater certainty in the event of divorce for those who are already married but are expected to receive an inheritance or become the beneficiary of a trust. A post-nuptial agreement may also form part of your own estate planning exercise.

Why Choose JMW?

The solicitors in our family department have a wide range of experience dealing with the many issues that arise when trust property is involved in a financial settlement on divorce, including:

• Multi-million pound family trusts
• Advising on intergenerational asset transfers, including agricultural property
• Trust deed variation
• Multi-party litigation involving trustees and other interested parties
• Personal and corporate assets owned via offshore trust structures
• Trust settlements for the benefit of children following claims for financial provision for children

JMW can provide early, realistic advice to trustees, beneficiaries or their spouses/civil partners to ensure that their rights are protected in the event of a divorce or dissolution. We have a wealth of experience acting for parties in divorce proceedings where trust property features and can offer the guidance you need at all stages of the process.

As part of a full service law firm, the family department at JMW has the advantage of a close working relationship with our wills, trusts and estates planning department to give you and your family the full range of expertise when dealing with family trusts and divorce.